High Court Of Delhi
CIT vs. Crown Computerised
Sections 80HHC(3), 80HHC, Expln.
Asst. Year 1998-99
Madan B. Lokur & V.B. Gupta, JJ.
IT Appeal No. 540 of 2006
9th January, 2007
Counsel Appeared
J.R. Goel with S.C. Sharma, for the Revenue : O.S. Bajpai with V.N. Jha, for the Assessee
ORDER
By the court :
The Revenue is aggrieved by an order dt. 6th July, 2005 passed by the Tribunal, Delhi Bench ‘C’ in ITA No. 3334/Del/2001 relevant for the asst. yr. 1998-99. The controversy in this case is whether freight charges said to have been incurred by the assessee and recovered by it from its foreign buyer are liable to be included in the expression ‘indirect cost’ for the purposes of calculation of the export turnover in terms of s. 80HHC(3)(b) of the IT Act, 1961. According to the assessee, when it had filed its return, it had inadvertently shown an expenditure of Rs. 30,95,158 incurred by it towards shipment freight as a part of its indirect cost. This was later on corrected by the assessee and a fresh audit report was filed by it. The AO did not accept the revised working of loss from export of trading goods and included the amount of Rs. 30,95,158 as a part of the indirect cost incurred by the assessee. The CIT(A) decided the appeal preferred by the assessee in its favour. The learned Tribunal upheld the view of the CIT(A) and that is how the matter is before us in an appeal under s. 260A of the Act. There is no doubt about the fact that the amount of Rs. 30,95,158 expended by the assessee towards shipment freight was recovered from the foreign buyer and the amount so recovered was deducted by the assessee from its total turnover for the purposes of determining the FOB value of the goods exported. Sec. 80HHC(3)(b) of the Act is important and it reads as follows : “80HHC. Deduction in respect of profits retained for export business. (1) and (2) xxxxx (3) For the purposes of sub-s. (1)— (a) xxxxx (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export.” A bare perusal of the above clause shows that direct costs and indirect costs are not to be included for the purposes of calculating the export turnover in respect of trading goods.
7. Export turnover has been defined in cl. (b) of the Explanation to s. 80HHC(4C) as follows : “(b) ‘export turnover’ means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with cl. (a) of sub-s. (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).” It is quite clear from the above that freight or insurance attributable to the transport of goods or merchandise beyond the customs station is not a part of the export turnover of the goods and, therefore, cannot be included in the profits derived by the assessee from the export of trading goods. As we have already mentioned above, there is no dispute that the shipment freight has been recovered by the assessee from its foreign buyer and, therefore, no “cost” has been incurred by the assessee. The fact that shipment freight cannot be a direct cost has been accepted by the Calcutta High Court in CIT vs. H.M. Exports Ltd. (2005) 195 CTR (Cal) 154. The question that is sought to be agitated by learned counsel for the Revenue is that shipment freight forms a part of the indirect cost. “Indirect costs” has been defined in the Explanation to sub-s. (3) of s. 80HHC of the Act as follows :
“Explanation.—For the purposes of this sub-section— (a) to (d) xxxxx (e) ‘indirect costs’ means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover. (f) xxxxxx”
We are of the view that the shipment freight cannot be included as a part of the indirect cost incurred by the assessee since it is not a part of the export turnover as defined in cl. (b) of the Explanation to s. 80HHC(4C) of the Act. Moreover, it is not a “cost” incurred by the assessee in respect of the goods which are exported. Shipment freight is, in effect, only transportation charges incurred by the assessee which will have to be, as in this case, borne by the foreign buyer. The shipment freight does not go into the cost of the trading goods as far as the assessee is concerned. Under the circumstances, we are of the view that the Revenue has not raised any question of law much less any substantial question of law which would warrant our consideration under s. 260A of the Act. Dismissed.
[Citation : 289 ITR 151]
